Are Final JOBS Act Crowdfunding Rules Truly Upon Us?
It’s been too long since I graced the pages of Crowdfund Insider with one of my many missives – or as some at the SEC might say: missiles. Well, since Regulation A+ went live in June 2015, courtesy of the JOBS Act of 2012 and the SEC, I’ve had my head down – overwhelmed with the business at hand. But there are moments in life when time stands still and the press of business fades away. The birth of a child, the death of a loved one, or a catastrophic event which rocks our world – forcing one to stop and re-examine one’s priorities and purpose in life. October 2nd was one of those days.
In all candor, October 2nd was my birthday. And also the birth of Mahatma Ghandi, the first public figure to utter the words “be the change you wish to see in the world.” But all of this was simply a coincidence.
You see, October 2 was SEC Commissioner Daniel M. Gallagher’s last day as one of five SEC Commissioners, voluntary vacating this position after four years of dedicated public service – and that is without counting the years he spent doing the heavy lifting as a member of the SEC Staff.
But it is no coincidence that on the weekend following his departure, in the wee hours of the morning, there was a sighting of a delivery at the back door of the SEC’s headquarters in Washington, D.C. – an 18 wheeler making a delivery of liquefied oxygen – captured on camera by a passerby.
Many have speculated that the oxygen was deemed essential to spur on the legions of SEC Staffers putting the finishing touches on the hundreds of pages of long awaited (and long delayed) final JOBS Act Title III rules (more on that speculation below). But others saw a different picture: after four years as an SEC Commissioner Dan Gallagher had sucked all of the oxygen out of the SEC’s headquarters. It was time for him to move on – and necessary to replenish the air supply.
Though the void created by the departure of Commissioner Gallagher will be a difficult one to fill, if the truth be known, what Commissioner Gallagher left behind at the SEC was a rich legacy – one that left its mark along the path pursued by Americans in search of the American dream – a path sorely in need of widening. This is the path traveled by entrepreneurs inspired by a vision, and in need of capital to make that vision a reality.
Though he spent four arduous years battling the headwinds created by the likes of Barney Frank, and the Dodd-Frank Act of 2010, he never lost focus or energy in pursuit of new and better avenues for the most underserved population in our Nation’s Capital – small business and small business job creators. He has left his mark on a revitalized – and workable – Regulation A+. He has helped push Title III of the JOBS Act to the goal line – and undoubtedly in much better form than the belatedly proposed rules. And he has left a vision, and a foundation, for carrying forward a whole host of measures which will likely take years to come to fruition. But perhaps most importantly, his words and his deeds have undoubtedly inspired an army of emissaries to carry on the battle.
What will become of Commissioner Gallagher in civilian life? I leave that in his most capable hands. Undoubtedly, free of the shackles of public office he will continue to blaze a path uniquely his own.
Say What? Title III Final Crowdfunding Rules at the Goal Line!
That’s right. The three great forces of nature – greed, fear and survival – have moved the Commission to finish the remaining chapter of the JOBS Act – the implementation of unaccredited investor crowdfunding.
For those of you who read to the end of my article in CrowdfundInsider Insider in June 2015, you learned of the scathing rebuke of the Commission by the House Appropriations Committee. In denying the SEC’s nearly one quarter of a billion dollar budget increase the Committee pointed to the “inoperable” proposed Title III rules, ensconced in nearly 600 pages of minutia, echoing the sentiment of an early and ardent JOBS Act supporter, Dara Albright, who proclaimed: “Why bother!” Though my critique of the SEC’s proposed rules back in January 2014 was even more pointed, characterizing the proposed rules as “The Six Deadly Sins,” my humble utterances were not backed by the power of the Congressional purse. But the message of Congress was loud and clear – leaving no doubt in my mind that final rules were to be in place by this year’s end – before Chair White would make her next annual journey to the Hill to sing for the Commission’s supper.
So lo and behold in recent days there has been an increase in media chatter, warning of the imminence of final crowdfunding rules this month. Even Chair White has recently hinted in public remarks that final crowdfunding rules will soon be upon us.
So What Will the Final Rules Look Like?
Well, no one outside the walls of the SEC knows for sure. But mark my words. They will look a lot better than the October 2013 version. Hopefully gone will be the requirement of audited financial statements for bite sized companies – not merely once – but in perpetuity. Hopefully gone will be the Commission’s gratuitous (and in my opinion – wrongful) reading of the JOBS Act imposing nearly strict liability on the crowdfunding portals for the errors and omissions of the companies they list. These two missteps alone were enough, in my opinion, to kill the crowdfunding ecosystem.
The Commission and the Staff did a yeoman’s job in responding to the many public comments on the proposed Regulation A+ rules – no doubt in large measure due to the tenaciousness of Commissioner Gallagher. I expect they will come close as well in the final crowdfunding rules (also in large measure due to the efforts of Commissioner Gallagher), their resolve and backbone bolstered somewhat by the success of unaccredited investor crowdfunding in the UK.
Any unfinished business (yes, there will be unfinished business) will undoubtedly be a focus of the House and the Senate in 2016. And the second time will be the charm.
(Editors Note: CFPA is holding their Annual Summit on December 2nd in Washington, DC. Sam invites interested parties to go to CPFA.org for further details)
Samuel S. Guzik, a Senior Contributor to Crowdfund Insider, is a corporate and securities attorney and business advisor with the law firm of Guzik & Associates, with more than 30 years of experience in private practice. Guzik is also the President and Board Chair of the Crowdfunding Professional Association (CFPA). A nationally recognized authority on the JOBS Act, including Regulation D private placements, investment crowdfunding and Regulation A+, he is and an advisor to legislators, researchers and private businesses, including crowdfunding issuers, service providers and platforms, on matters relating to the JOBS Act. As an advocate for small and medium sized business he has engaged with major stakeholders in the ongoing post-JOBS Act reform, including legislators, industry advocates and federal and state securities regulators. In 2014, some of his speaking engagements have included leading a Crowdfunding Roundtable in Washington, DC sponsored by the U.S. Small Business Administration Office of Advocacy, a panelist at the MIT Sloan School of Business 2014 Crowdfunding Roundtable, and a panelist at a national bar association event which included private practitioners, investor advocates and officials of NASAA. His articles on JOBS Act issues, including two published in the Harvard Law School Forum on Corporate Governance and Financial Regulation, have also served as a basis for post-JOBS Act proposed legislation.